Just as the FCPA enforcement field is covered with actions centering around mergers and acquisitions, there are multiple actions involving joint ventures (JVs), which continue to plague many U.S. companies. In many ways, JVs present more difficult issues for the compliance practitioner than mergers and acquisitions because of the control issues present in JVs with foreign governments or state-owned enterprises ownership. 

As early as 2002, in the Securities and Exchange Commission FCPA enforcement action involving BellSouth, the SEC alleged that BellSouth “held less than 50 percent of the voting power of Telefonia, but through its operational control, had the ability to cause Telefonia to comply with the FCPA’s books and records and internal controls provisions.” There can be direct liability as well, such as in the case of Halliburton and its former subsidiary KBR in the TSJK JV. Finally,  JVs can be a source of vicarious liability. This was what happened in the 2016 enforcement action involving Anheuser-Busch InBev, in India, and the company paid $6 million to settle charges that it violated the FCPA and impeded a whistleblower who reported the misconduct.

Any company that operates a JV with foreign governments or state-owned enterprises holds the same FCPA risk as the JV partner itself, the risks become apparent relating to the operation of the joint venture, meaning that if the joint venture interacts with foreign government officials or employees of a state-owned enterprise and leverages its state-owned enterprise relationships for an improper benefit either contracts and/or regulatory licenses, permits or customs approvals; it could well be subject to FCPA scrutiny. Unfortunately, it is often difficult to regulate a JV’s interactions with foreign government officials, particularly when the partner is a state-owned enterprise, or where the company is relying on the local company for its local contacts and expertise for business development and/or regulatory knowledge and experience in the country where the JV operates.

The bottom line is joint ventures present a unique set of FCPA risks for the compliance practitioner, which is why companies need to incorporate risk management techniques in all phases of JV relations, pre-formation, the JV agreement, and in operations after the JV has begun operation. The compliance obligations and compliance process are ongoing.

Topics